How to determine a redundancy pool

Dismissal on grounds of redundancy has arguably become simpler to justify during the economic downturn. Not only is it easier in these recessionary times to demonstrate that a redundancy is genuine, but we are also now free of the artifice of complying with the three-step dismissal procedure following the repeal of the statutory dismissal procedures from 6 April 2009. Further, the Acas Code of Practice clarifies that redundancy dismissals are helpfully excluded from its scope.

This is not to say that fair consultation is no longer essential, and the nature and scope of the consultation will still have a significant impact upon a tribunal’s overall assessment of the general fairness and reasonableness of the decision to dismiss. However, the legal challenge for employers when carrying out a redundancy exercise is now more likely to be re-focused on justifying the choice of any ‘pool’ out of which employees are selected and the selection criteria applied.

If an employer dismisses an employee without proper consideration of the appropriate selection pool or through the application of inappropriate criteria, the dismissal is highly likely to be unfair. This article focuses on the legal issues surrounding selection pools.

Identification of the appropriate pool must always involve careful consideration of what kind of work is disappearing, from which location – or establishment – and which employees do that kind of work. Other factors likely to be relevant are:

The extent to which employees are doing similar work

The extent to which employees’ jobs are interchangeable

Whether the section pool has been agreed with the union or staff representatives.

The issue of the pool becomes complicated when employees are multi-skilled and can theoretically carry out alternative types of work, or whose employment contracts could require them to do so. An employee may argue that they are no different from and should be pooled with employees with whom their skills are interchangeable. In these circumstances, a wider pool may be called for.

Employers are often reluctant to draw up a wide pool even if it would technically be correct to do so, as this is bound to increase the adverse effect on morale in the workforce. But a commercial decision must be made as to whether such risks outweigh the risk of unfair dismissal claims.

If an employer can demonstrate that it has genuinely and reasonably applied its mind to what group of employees should form the selection pool and why, it will not be easily challenged by an employee. A tribunal will only consider the reasonableness of the decision – ie, whether the pool selected was within the range of reasonable responses. Importantly, the tribunal must not substitute its own view for that of the employer, including where there are a number of different potential pools, all of which would be reasonable. Employers must therefore ensure they can provide sound reasons for the choice of pool, focusing on the reality of the employment situation at hand.

Although not the focus of this article, employers must remember that a tribunal will also consider whether the selection criteria used were objective, reasonable and non-discriminatory. Wherever possible the criteria should be capable of independent verification – ie, measurable rather than based on someone’s opinion – although this is often difficult. Length of service, if used, must only be one criterion as it is indirectly discriminatory on the grounds of age. However, the recent case of Rolls Royce v Unite the Union held that use of length of service was objectively justified in maintaining a stable workforce and rewarding loyalty.

It is predicted that many thousands of jobs will continue to be lost over the coming months, and employers need to keep on top of the requirements for a fair redundancy. In any redundancy, the focus should always be on the question of reasonableness and fairness. Failing to demonstrate either is likely to result in a finding of unfair dismissal and/or other related claims, such as discrimination, meaning significant compensation will be payable to the employees in question and increasing costs to employers.

Sensibly, employers are less likely to face challenges on procedural grounds following the exclusion of redundancy from the Acas code, but we have seen a significant increase in employers being challenged on their choice of selection pools. However, the Lomond case (see case study) demonstrates employers can have significant flexibility if sound business reasons exist.

The recent case of Lomond Motors Limited v Mr Robert Clark – a case dealing with a change in the place of work – illustrates that employers do enjoy a certain degree of flexibility in their choice of selection pool, on condition they can provide evidence of sound business judgement having been exercised.

In this case, the Employment Appeal Tribunal (EAT) held that the employer was entitled to limit its focus to where the employee was working at the time of the redundancy, without having to take into account where he had worked historically, or what he could do in the future. The employer had done enough for the EAT to see that in all the circumstances it had made good business sense to approach the issue in the way that it had and the selection pool was reasonable.

Furthermore, the tribunal at first instance should not have substituted the selection pool it would have chosen, with the pool the employer had chosen on that occasion, as the employer’s decision had been reasonable.

Employers can therefore take comfort in the fact that while a tribunal may find that other selection pools would also have been fair, or even more fair than the one chosen, provided the one chosen is reasonable, it will not in itself render a dismissal unfair.